Financial Crisis

[Naam]

OK. On 2., that is their call... you have to go back several pages before you even see the word 'Thailand'

i see no need to mention Thailand specifically as it goes without saying that Thailand's economy too is affected by the crisis and this in turn affects in various ways us expats living in Thailand. some of us might gain, some of us might lose. needless also to mention that a number of expats have already lost a lot because their assets or their 'home currency' were negatively affected by the crisis.

[12DrinkMore]

I hate to think what the Chinese current A/C surplus would be if they werent paid in useless dollars.

Just imagine the Asian smiles if the USD was reattached to delivery in gold, as indeed some loonies are suggesting....

Just won't ever happen, never, ever.

Edited March 19, 2010 by 12DrinkMore

[AlexLah]

Yo Jazz, not think too much about attacks on your views and replies on this thread.

I remember I was ridiculed and laughed at by some when I said we are not being told the truth when the alleged crisis began.

I think we all know better now.

There is a way to get out of this supposed crisis, but the solution is against everything you think is the right thing to do.

[lannarebirth]

Yo Jazz, not think too much about attacks on your views and replies on this thread.

I remember I was ridiculed and laughed at by some when I said we are not being told the truth when the alleged crisis began.

I think we all know better now.

There is a way to get out of this supposed crisis, but the solution is against everything you think is the right thing to do.

As you can see Alex, they're gonna run Uncle Buck.

Edited March 19, 2010 by lannarebirth

[MJP]

I study this stuff all the time and I try to figure what makes sense and what doesn't from economists of all political and economic shades because I still believe that we're working towards a single coherent answer but that we don't have that yet. And by the way I did predict the sub-prime crisis, the crunch and the GFC on many, many occasions in talks and articles in 2006/7/8 - people repeatedly asked me not to be so gloomy. They're asking me that again now too, when I talk about the medium term.

Actually I am reasonably optimistic in many senses. The one thing that I think frustrates everyone more than anything in this thread is that some of the structural problems are not even being accepted let alone tackled. Shoring up one asset bubble by trying to create another, private sector deleveraging simply being replaced by public sector leveraging. No bank sector reform or sign of it etc. Massive global exchange rate imbalances that are now mutually destructive to all economies. I dont think it is rocket science and rebalancing, restructuring will happen. I actually think that the average person understands the issues and wants to address them while many of the policy makers have economic models based on ever increasing private sector debt. The financial crisis was the best thing that ever happened to the Thai economy. It would be incredibly disappointing if the US financial crisis didnt lead to fundamental structural changes.

Has the Fed or the Government ever actually stated that the US private sector was either overleveraged or overindebted. Never.

How incredibly could the UK during a time of plenty waste its entire old inheritance and still be in shit? What a strategy. Waste the oil. Borrow from future generations and then leave those future generations to be financed by a smaller number of people who that have just screwed.

Oh well zero interest rates and inflation (apart from the euros).

Good innit?

[12DrinkMore]

Gotcha just where I wantcha.

UK maxed out paying off debts to the finance industry.

http://www.telegraph.co.uk/finance/persona...-they-earn.html

More than 5m adults spend more than they earn, according to a survey.

A further 13m just break even at the end of every month while 26m have less than £100 left in their bank account after paying all their bills, research from uSwitch.com, the price comparison service, found.

If you can believe the figures, there is hardly a single adult in the UK managing to save more than 5,000 Baht/month. My local noodle soup stands do far better than that.

And the government reckons they can tax 'em even more?

:D

But I do not understand why they are moaning about the price of fuel

Predictions that the price of petrol is about to reach a record high of £1.20 a litre

That is only about 1.6 times what the Thais are paying....................................................... and the average wage in Thailand is far far below the average wage in the UK.

Surely some economic imbalance is evident here?

[MJP]

Gotcha just where I wantcha.

UK maxed out paying off debts to the finance industry.

http://www.telegraph.co.uk/finance/persona...-they-earn.html

More than 5m adults spend more than they earn, according to a survey.

A further 13m just break even at the end of every month while 26m have less than £100 left in their bank account after paying all their bills, research from uSwitch.com, the price comparison service, found.

If you can believe the figures, there is hardly a single adult in the UK managing to save more than 5,000 Baht/month. My local noodle soup stands do far better than that.

And the government reckons they can tax 'em even more?

But I do not understand why they are moaning about the price of fuel

Predictions that the price of petrol is about to reach a record high of £1.20 a litre

That is only about 1.6 times what the Thais are paying....................................................... and the average wage in Thailand is far far below the average wage in the UK.

Surely some economic imbalance is evident here?

Not for long!

But if a noodle soup stand saves more than the average Brit, whos richer?

A countdown conundrum.

[jazzbo]

but the solution is against everything you think is the right thing to do. That's funny because I do not believe I have ever said what is the right thing to do in fact I don't have the slightest f-cking idea.

I remember I was ridiculed and laughed at by some when I said we are not being told the truth when the alleged crisis began. With such prescience as you have you must be a billionaire like J. Paulson... or else you are like those who commented on Dr. Krugman's column 'My wife even knew the real estate market was going to collapse.'

NB "I see no connection to Thailand or doing business here except in the very abstract." topic closed --one of the Mods elsewhere on this Forum

Edited March 19, 2010 by jazzbo

[flying]

Gotcha just where I wantcha.

UK maxed out paying off debts to the finance industry.

More than 5m adults spend more than they earn, according to a survey.

A further 13m just break even at the end of every month while 26m have less than £100 left in their bank account after paying all their bills, research from uSwitch.com, the price comparison service, found.

If you can believe the figures, there is hardly a single adult in the UK managing to save more than 5,000 Baht/month. My local noodle soup stands do far better than that.

And the government reckons they can tax 'em even more?

:D :D

Surely some economic imbalance is evident here?

Now you look at this & then you look at the governments........... How is it different?

Actually some of the citizens...cash cows... are still doing better by miles. Because at least some of them live within their means & can actually pay off or have paid off their debts. They will now be penalized as their savings are devalued.

A link to unsound money is evident. Whether you print it, digitize it, borrow it. The result is the same. Governments or citizens

living beyond their means. We see the result.

Now as you say the governments think they can tax their way out? It is like Social Security....not enough cash cows left.. Still losing over 50k of them a month here....There goes the faith that gave the fiat credibility

[flying]

Hey 12D...Here is one adult on your side of the pond doing ok

Blair's fight to keep his oil cash secret: Former PM's deals are revealed as his earnings since 2007 reach £20million

[sokal]

Again these are not my words Today Stephen Roach said. "We should take out the baseball bat on Paul Krugman -- I mean I think that [his] advice [to push China to revalue the Renminbi] is completely wrong.”

The Chairman of Morgan Stanley Asia is about as direct as one can be in the following Bloomberg interview: "We should take out the baseball bat on Paul Krugman -- I mean I think that [his] advice [to push China to revalue the Renminbi] is completely wrong.” Well, somebody had to finally say it. So instead of pointing the scapegoating finger somewhere else, which seems to be the norm these days (cue G-Pap and his quadrillionth repetition that Greece is perfectly solvent and that unless somebody bails him out (ignore the lack of logic for a second), he will start playing Russian roulette with a fully loaded gun), Roach looks in the mirror: "America does not have a China problem. America has a savings problem. America has the biggest savings shortfall of any leading country in modern history, When you don't have savings you have to run current account deficits to import surplus savings from abroad and run massive trade deficits to attract the capital... Isn't it the height of hypocrisy that America can articulate a particular position in its currency but the Chinese are not allowed to do that." Also some not so kind words about Senator Schumer: "He always has a view no matter where the Renminbi is, that it is 27.5% undervalued."

.

Look Sokal, when you start listening to brokers, you might as well go back to youtube.

What do you think the Chairman of Morgan Stanley Asia does for a job.

And his argument is nonsensical. Trade must balance. The US has a savings problem because China saves too much. Reducing excessive trade surpluses is as much a responsibility as reducing excessive trade deficits. And remember that Taiwan, Thailand, South Korea are all basically pegged to the yuan, so it is only half the problem. And China doesnt need to articulate a particular position in its currency because it can simply set it where they want due to capital controls. Still I am sure that speech went down well for the pitch to Hyai Kung Kai flotation this morning. Anyway this is why Keynes suggests a tax on C/A surpluses because you are basically growing on the back of your customers. Smaller surpluses create smaller deficits. I hate to think what the Chinese current A/C surplus would be if they werent paid in useless dollars.

I think the chairman of MS Asia has more credibility then an keynesian professor. I am sure Stephen Roach has to deliver results or he would be fired, I don't think professors like Krugman live in the real world.

[sokal]

OK. On 2., that is their call... you have to go back several pages before you even see the word 'Thailand'

Stephen Roach is the chairman of Morgan Stanley ASIA Thailand is part of Asia.

[sokal]

I hate to think what the Chinese current A/C surplus would be if they werent paid in useless dollars.

Just imagine the Asian smiles if the USD was reattached to delivery in gold, as indeed some loonies are suggesting....

Just won't ever happen, never, ever.

Nobody is suggesting anything of the sort. Having central banks back a certain amount of their reserves with gold is not a loonie idea. It is what they have always done.

[jazzbo]

What do you think the Chairman of Morgan Stanley Asia does for a job. He and his firm handle "managed portfolios" on behalf of persons for whom you should 'feel sorry'.

Whether you print it, digitize it, borrow it. The result is the same. Governments or citizens living beyond their means. We see the result. ALSO... Being a contractor one thing I have seen a lot of ... That's great coming from a contractor... buildings or houses, I presume, not violins.

TV Buzzword Generator: useless Keynesian fiat dollars from an insane digital printing press

I actually rest easy at night knowing that the Usual Suspects and other similar persons have nowhere else but this Forum to vent their useless-fiat-dollar frustrations rather than be in any position with even a modicum of authority or responsibility.

Edited March 20, 2010 by jazzbo

[Abrak]

Nobody is suggesting anything of the sort. Having central banks back a certain amount of their reserves with gold is not a loonie idea. It is what they have always done.

So obviously you need a certain amount of reserves to provide liquidity in a panic - say 3 months imports. Now if you have excess reserves like Thailand doesnt it really make sense to use excess reserves to build up commodity holdings, invest abroad, do something inherently more productive than sitting on USTs.

Thailand has say US$70bn of 'excess' reserves. I simply dont believe acquiring ever increasing amounts of US$ or other currencies is the best use of them. Is there any theoretical work on this?

[Gambles]

Don't worry Gambles, I insult Sokal, he insults distinguished economists, just to get back at me I suspect. He doesn't take it to heart.

Nothing wrong with some good-natured banter

Sometimes it starts to sound like it's getting a bit bitter though

I did at one point moot the idea of inviting all the posters from here to get together in one place and have a round table debate on all of these issues which I still think is a great idea (just might not allow any sharp implements) but no-one really responded to the idea which is a shame...

Incidentally Murray Rothbard is one of my pet hates - 70 pages on Robinson Crusoe economics. Personally I think the Fed is just recovering from the largest financial disaster avoidance strategy in living memory. I see no chance of real recovery for the US until they get China off their back. They have used up all their ammo.

There are an awful lot of flaws in "Causes" but I still maintain that it's the best study - but I agree that you have to disregard the gold polemic - it would be an even better book if every page didn't start with the idea that if the countries hadn't abandoned gold then the world would be a better place. In that sense it shares the same flaw as Friedman and Schwartz in Monetary History or Keynes in "General Theory". Too much economic writing seems to start from its own conclusion and then make the facts and events fit the theory. This partly reflects the nature of economic study last century where it developed as an interpretative study of history presented as a coherent system of beliefs - i.e. A (along with a million and one other possibilities) could be the outcome of B event if C is true - now I need to make every other fact fit in with the belief that C is true. As a result I prefer economists who hypothesise to theorise; ones who try to join the dots between cause and effect rather than anyone pushing dogma. All that said I still prefer to read "Causes" than any other book on The Great Depression and I wish that Bernanke had never developed his besotted, blind man-crush on Milton Friedman which we'll all have to pay for in the coming years.

Anyway here is a question for you or anyone.

I called a central reserve currency backed by gold 'insanely stupid' while whinging about others calling people stupid.

Conceptually I see a central reserve gold backed currency as a recipe for bankruptcy (assuming you don't move to fiat.)

Now assuming say the US started with 60,000 tonnes fully backing its currency in what theoretical way could it avoid bankruptcy in the future (other than collapsing global growth.)

You can make any assumptions you like (no ladders, no reciprocal altruism, no large gold discoveries, constant increases in velocity). You can debase gold if you like, or inflate the price. Adjust interest rates. All roads lead to bankruptcy. Oh and go for capital controls, taxes on surpluses, import tariffs etc.

It just seems inherently intuitive. The Chinese have large surpluses being paid for by ticker tape, what if the dollar was backed by gold. Eventually you have to debase as you fund global liquidity which eventually leads to the loss of all your gold and bankruptcy. This can all be avoided by artificially destroying the global economy.

It virtually ruined the UK economy and did a pretty good job on the US. Just need a theoretical answer.

No, I don't agree

A return to gold standards would be hugely damaging in many ways. Gold is an arbitrary way to enforce fiscal disciplines and would have a huge drag on global growth as well as distributing rights to global growth in a random way - the extent to which it's immediately good or bad for individual debtor nations like Greece, France, Germany, USA would depend on how existing debts and gold holdings are treated - jack up the price of gold to $ 100,000 per oz and they can easily repay all their debts and start from scratch. China would, assuming that US clears its debts in a responsible way. end up presumably with an increased gold holding. Going forwards assuming that South Africa and China remain the largest gold producers they would hold the lion's share of responsibility for controlling the flow of gold and for the destiny of the global economy. Your fears about economic sovereignty would be very real.

However under such a scenario currency can't exceed gold reserves, hence sovereign bankruptcies become impossible - although the risk is that the depressionary forces of maintaining the discipline force countries to abandon adherence again in the future and that leads us into 1930s style sovereign debt and default issues. Adherence to the standard builds up such huge depression forces that when these are unleashed.

It would suit the debtor nations with huge gold holdings to inflate away the debt through a huge currency devaluation and a return to gold at higher prices but what about debtor nations without gold holdings? The UK would not be able to participate in this system and would join marginalized countries like Iceland and Ireland excluded from this new global economy - they'd have to be bailed out by the beneficiaries.

Most of Asia would be set back many years because of low gold holdings and seeing the value of their FIAT reserves depreciated. The adjustments involved would cause a new set of global imbalances that would dwarf the current problems. The global economy would eventually recover but probably not in any recognisable form. This would be an even bigger shock to the system than Bretton Woods and it may take something like another world war to cause its introduction.

Gold-backed currencies are an accident of history. I do not believe that they make sense today. Individual interpretations of fiscal policy have arguably been even worse. Rules-based experiments like the Euro appear to be failing in very short order because countries twist and then break the rules. In 2010 it ought not to be impossible to devise a global system based on money supply in relation to something less random (asset and GDP ratios) enforceable globally but there is no mechanism for doing so. Many of the problems that we see now are the outcome of countries pursuing national self-interest in a system that has no effective co-ordinated global regulation. Global problems are the symptom, national self-interest is the disease. Gold at least applied limits to this but I believe that the costs of re-introducing gold in 2010 would be too high to be acceptable to many countries. Who knows, maybe an attempt to force the issue could be an underlying cause of WW III ?

[Gambles]

hmm, I turn my back for my one minute and WW III breaks out!

Dont mind that stuff

As someone who spends way too much of his professional time, studying, researching and reading I actually find it sad that there seems to be a lot of dogma breeding mutual disrespect sometimes. Not sad from a spectator point of view - a good verbal punch up is always entertaining but just because I think that by becoming too partisan sometimes this can actually impede open minded thinking and understanding.

I like the way you think..... Tis true

I study this stuff all the time and I try to figure what makes sense and what doesn't from economists of all political and economic shades because I still believe that we're working towards a single coherent answer but that we don't have that yet.

I do not study it but find it interesting.... As such I wondered when you said ... I still believe that we're working towards a single coherent answer

Many times viewing info that has surfaced after TARP was released....Who was bailed & who was not etc...I do not feel TPTB are working towards a single answer at all. Seems like more of the same old....In which case answer A of your question fits best.

Then again I personally would pick D

But if you mean we as in the people or armchair wonderer's well that is a different story.

thanks Flying for the kind words

I was actually meaning we as a supposed civilization but I totally take on board and agree with what you say. I did a number of presentations last year about the sovereign policies in response to the GFC (I think that you can imagine that I wasn't overly complimentary about government policies) and I finished with the oft quoted Einstein aphorism “We can't solve problems by using the same kind of thinking we used when we created them.” and yet se still seem to be trying. I wish that the 'heads' thought as radically about the issues as all the blogs like TV that must be taking place around the world right now. My main contempt is reserved for Bernanke because I feel that I can see so many of the shortcomings in his dogma.

[Gambles]

I study this stuff all the time and I try to figure what makes sense and what doesn't from economists of all political and economic shades because I still believe that we're working towards a single coherent answer but that we don't have that yet. And by the way I did predict the sub-prime crisis, the crunch and the GFC on many, many occasions in talks and articles in 2006/7/8 - people repeatedly asked me not to be so gloomy. They're asking me that again now too, when I talk about the medium term.

Actually I am reasonably optimistic in many senses. The one thing that I think frustrates everyone more than anything in this thread is that some of the structural problems are not even being accepted let alone tackled. Shoring up one asset bubble by trying to create another, private sector deleveraging simply being replaced by public sector leveraging. No bank sector reform or sign of it etc. Massive global exchange rate imbalances that are now mutually destructive to all economies. I dont think it is rocket science and rebalancing, restructuring will happen. I actually think that the average person understands the issues and wants to address them while many of the policy makers have economic models based on ever increasing private sector debt. The financial crisis was the best thing that ever happened to the Thai economy. It would be incredibly disappointing if the US financial crisis didnt lead to fundamental structural changes.

Has the Fed or the Government ever actually stated that the US private sector was either overleveraged or overindebted. Never.

How incredibly could the UK during a time of plenty waste its entire old inheritance and still be in shit? What a strategy. Waste the oil. Borrow from future generations and then leave those future generations to be financed by a smaller number of people who that have just screwed.

Oh well zero interest rates and inflation (apart from the euros).

I agree with much of that Abrak - see my above post to Flying

2008 was a huge opportunity missed...

[sokal]

What do you think the Chairman of Morgan Stanley Asia does for a job. He and his firm handle "managed portfolios" on behalf of persons for whom you should 'feel sorry'.

Whether you print it, digitize it, borrow it. The result is the same. Governments or citizens living beyond their means. We see the result. ALSO... Being a contractor one thing I have seen a lot of ... That's great coming from a contractor... buildings or houses, I presume, not violins.

TV Buzzword Generator: useless Keynesian fiat dollars from an insane digital printing press

Calling fiat keynesian is an insult to fiat. If fiat was managed strictly by Austrian economists then it would have a chance, that is the way the Federal reserve was originally set up. It was supposed to be independent so that the politicians could not go Mugabe on the currency. Keynesianism is the politicians way around the independence of the Federal reserve.

[sokal]

Nobody is suggesting anything of the sort. Having central banks back a certain amount of their reserves with gold is not a loonie idea. It is what they have always done.

So obviously you need a certain amount of reserves to provide liquidity in a panic - say 3 months imports. Now if you have excess reserves like Thailand doesnt it really make sense to use excess reserves to build up commodity holdings, invest abroad, do something inherently more productive than sitting on USTs.

Thailand has say US$70bn of 'excess' reserves. I simply dont believe acquiring ever increasing amounts of US$ or other currencies is the best use of them. Is there any theoretical work on this?

I am just going to end up pissing you off with this but I am not trying to. Liquidity is a keynesian term. The only problem with Bernie Madoffs ponzi scheme was that it ran out of liquidity. If you run out of liquidity it means you went broke and you where not a good steward of your capital. Citi bank, AIG, GM. Iceland or Madoff, they all ran out of liquidity. By printing fiat money backed by nothing out of thin air to provide liquidity does not solve anything long term.

[Abrak]

No, I don't agree

A return to gold standards would be hugely damaging in many ways. Gold is an arbitrary way to enforce fiscal disciplines and would have a huge drag on global growth as well as distributing rights to global growth in a random way - the extent to which it's immediately good or bad for individual debtor nations like Greece, France, Germany, USA would depend on how existing debts and gold holdings are treated - jack up the price of gold to $ 100,000 per oz and they can easily repay all their debts and start from scratch. China would, assuming that US clears its debts in a responsible way. end up presumably with an increased gold holding. Going forwards assuming that South Africa and China remain the largest gold producers they would hold the lion's share of responsibility for controlling the flow of gold and for the destiny of the global economy. Your fears about economic sovereignty would be very real.

However under such a scenario currency can't exceed gold reserves, hence sovereign bankruptcies become impossible - although the risk is that the depressionary forces of maintaining the discipline force countries to abandon adherence again in the future and that leads us into 1930s style sovereign debt and default issues. Adherence to the standard builds up such huge depression forces that when these are unleashed.

It would suit the debtor nations with huge gold holdings to inflate away the debt through a huge currency devaluation and a return to gold at higher prices but what about debtor nations without gold holdings? The UK would not be able to participate in this system and would join marginalized countries like Iceland and Ireland excluded from this new global economy - they'd have to be bailed out by the beneficiaries.

Most of Asia would be set back many years because of low gold holdings and seeing the value of their FIAT reserves depreciated. The adjustments involved would cause a new set of global imbalances that would dwarf the current problems. The global economy would eventually recover but probably not in any recognisable form. This would be an even bigger shock to the system than Bretton Woods and it may take something like another world war to cause its introduction.

Gold-backed currencies are an accident of history. I do not believe that they make sense today. Individual interpretations of fiscal policy have arguably been even worse. Rules-based experiments like the Euro appear to be failing in very short order because countries twist and then break the rules. In 2010 it ought not to be impossible to devise a global system based on money supply in relation to something less random (asset and GDP ratios) enforceable globally but there is no mechanism for doing so. Many of the problems that we see now are the outcome of countries pursuing national self-interest in a system that has no effective co-ordinated global regulation. Global problems are the symptom, national self-interest is the disease. Gold at least applied limits to this but I believe that the costs of re-introducing gold in 2010 would be too high to be acceptable to many countries. Who knows, maybe an attempt to force the issue could be an underlying cause of WW III ?[/size][/font]

Ok, but go back and start again.

You cant make illogical assumptions. If you have a gold backed paper currency you cannot claim that huge reserves of gold allow you to revalue it because me (being say China) has already swapped my paper for your gold. If you are a huge debtor nation with a pile of gold and outstanding debts in paper gold backed by gold you cannot assume I am too stupid to recognize that you are going to debase the paper. That is why you are going bust. I take your gold rather your paper.

If you think about it huge debtor nations with large gold holdings supporting their paper is an oxymoron.

Very simply a gold backed central reserve currency would attract large annual acquisitions of its currency by other countries, the resulting current account deficit would cause ever increasing amount of debt for the Central Reserve Country. Obviously at some point this would result in a crisis of confidence over your ability to keep it gold backed, so paper is exchanged for gold, until you lose all your gold holdings.

[Abrak]

No, I don't agree

A return to gold standards would be hugely damaging in many ways. Gold is an arbitrary way to enforce fiscal disciplines and would have a huge drag on global growth as well as distributing rights to global growth in a random way - the extent to which it's immediately good or bad for individual debtor nations like Greece, France, Germany, USA would depend on how existing debts and gold holdings are treated - jack up the price of gold to $ 100,000 per oz and they can easily repay all their debts and start from scratch. China would, assuming that US clears its debts in a responsible way. end up presumably with an increased gold holding. Going forwards assuming that South Africa and China remain the largest gold producers they would hold the lion's share of responsibility for controlling the flow of gold and for the destiny of the global economy. Your fears about economic sovereignty would be very real.

However under such a scenario currency can't exceed gold reserves, hence sovereign bankruptcies become impossible - although the risk is that the depressionary forces of maintaining the discipline force countries to abandon adherence again in the future and that leads us into 1930s style sovereign debt and default issues. Adherence to the standard builds up such huge depression forces that when these are unleashed.

It would suit the debtor nations with huge gold holdings to inflate away the debt through a huge currency devaluation and a return to gold at higher prices but what about debtor nations without gold holdings? The UK would not be able to participate in this system and would join marginalized countries like Iceland and Ireland excluded from this new global economy - they'd have to be bailed out by the beneficiaries.

Most of Asia would be set back many years because of low gold holdings and seeing the value of their FIAT reserves depreciated. The adjustments involved would cause a new set of global imbalances that would dwarf the current problems. The global economy would eventually recover but probably not in any recognisable form. This would be an even bigger shock to the system than Bretton Woods and it may take something like another world war to cause its introduction.

Gold-backed currencies are an accident of history. I do not believe that they make sense today. Individual interpretations of fiscal policy have arguably been even worse. Rules-based experiments like the Euro appear to be failing in very short order because countries twist and then break the rules. In 2010 it ought not to be impossible to devise a global system based on money supply in relation to something less random (asset and GDP ratios) enforceable globally but there is no mechanism for doing so. Many of the problems that we see now are the outcome of countries pursuing national self-interest in a system that has no effective co-ordinated global regulation. Global problems are the symptom, national self-interest is the disease. Gold at least applied limits to this but I believe that the costs of re-introducing gold in 2010 would be too high to be acceptable to many countries. Who knows, maybe an attempt to force the issue could be an underlying cause of WW III ?[/size][/font]

Ok, but go back and start again.

You cant make illogical assumptions. If you have a gold backed paper currency you cannot claim that huge reserves of gold allow you to revalue it because me (being say China) has already swapped my paper for your gold. If you are a huge debtor nation with a pile of gold and outstanding debts in paper gold backed by gold you cannot assume I am too stupid to recognize that you are going to debase the paper. That is why you are going bust. I take your gold rather your paper.

If you think about it huge debtor nations with large gold holdings supporting their paper is an oxymoron.

Very simply a gold backed central reserve currency would attract large annual acquisitions of its currency by other countries, the resulting current account deficit would cause ever increasing amount of debt for the Central Reserve Country. Obviously at some point this would result in a crisis of confidence over your ability to keep it gold backed, so paper is exchanged for gold, until you lose all your gold holdings.

[Gambles]

hmm, I turn my back for my one minute and WW III breaks out!

Quick Quiz

Which of these best describes the Bernanke approach to economic policy

A) if I always do what I always did I'll always get what I always got

B ) Those who fail to learn from the mistakes of their predecessors are destined to repeat them.

C) fool me once shame on you fool me twice shame on me

D) All of the above

Answers on the back of a post card to Washington DC...

There's a lot of really good debate on here but I would have thought that what we can currently see when we look out of our windows in Bangkok ought to be enough of a reminder of the dangers of factionalism

and now I'm ready to be viciously shot down in flames by all sides successfully united against the common enemy (me)

I would pick B, those who fail to learn from their mistakes are destined to repeat them.

Can you elaborate on your comment about looking out the window in BKK ? im not sure if I get it...

I'm saying that once people seem to blindly rally around a perceived ideology that they believe is good for them and to blindly oppose a perceived ideology that they think is bad for them, it becomes very difficult to get people to look at every issue on an individual basis and agree the best independent outcome. You end up with what Stephen Covey calls lose-lose - I'll accept something that's bad for me as long as it hurts my enemy more.

Dogma is blind - once you become dogmatic about your own beliefs and the beliefs of others you spiral downwards and end up with the worst of all worlds. Once you open-mindedly try to embrace the best of what everyone believes you spiral upwards.

Don't throw Austrian, monetarist or Keynesian babies out with the bathwater. There's good and bad in all of these. My biggest issue with monetarism is that it's currently being blindly adopted by the Fed blithely ignoring its known and proven shortcomings. It's not monetarism that worries me, it's blind monetarism in the hands of Bernanke BUT I'd be equally concerned if he were a blind Austrian or blind Keynesian.

[Gambles]

Read one of your posts for the first time in six months. Whinge about the thread. Nothing to add.

So what does that mean -- do I subtract? What I mostly see here is a group of frustrated guys who think they have a handle on the world's macro-economic affairs but can find time to post in a forum such as this which will have zero impact on anything or anybody who might be in a position to change things ... they insult and belittle the persons in charge and whether I agree with the p-i-c's or not they are the ones in charge and that are determining our collective fates... not you guys in the hinterlands.

I hearken to the line in The Caine Mutiny screenplay after Captain Queeg has been destroyed on the witness stand:

You don't work with the captain because of his hairstyle, -- but because he's got the job, or you're no good.

... and if some of you guys are as smart as you think you are why don't you get off your a-- and do something about the perpetual Financial Crisis instead of writing here about how everybody but yourselves -- and maybe the good Dr. Paul -- has it all wrong.

... and since practically none of it has anything directly to do with Thailand maybe one of the Mods will just come in and just shut it down.

and Jazz the alternative is what? Stop caring? Stop debating? Stop learning?

You're wrong, Jazz, if that's what you wish for. I don't understand why it bothers you so much - but you clearly do have reasons. Sharing those might be a realy interesting post if you felt like it.....

[sokal]

Don't worry Gambles, I insult Sokal, he insults distinguished economists, just to get back at me I suspect. He doesn't take it to heart.

Nothing wrong with some good-natured banter

Sometimes it starts to sound like it's getting a bit bitter though

I did at one point moot the idea of inviting all the posters from here to get together in one place and have a round table debate on all of these issues which I still think is a great idea (just might not allow any sharp implements) but no-one really responded to the idea which is a shame...

Incidentally Murray Rothbard is one of my pet hates - 70 pages on Robinson Crusoe economics. Personally I think the Fed is just recovering from the largest financial disaster avoidance strategy in living memory. I see no chance of real recovery for the US until they get China off their back. They have used up all their ammo.

There are an awful lot of flaws in "Causes" but I still maintain that it's the best study - but I agree that you have to disregard the gold polemic - it would be an even better book if every page didn't start with the idea that if the countries hadn't abandoned gold then the world would be a better place. In that sense it shares the same flaw as Friedman and Schwartz in Monetary History or Keynes in "General Theory". Too much economic writing seems to start from its own conclusion and then make the facts and events fit the theory. This partly reflects the nature of economic study last century where it developed as an interpretative study of history presented as a coherent system of beliefs - i.e. A (along with a million and one other possibilities) could be the outcome of B event if C is true - now I need to make every other fact fit in with the belief that C is true. As a result I prefer economists who hypothesise to theorise; ones who try to join the dots between cause and effect rather than anyone pushing dogma. All that said I still prefer to read "Causes" than any other book on The Great Depression and I wish that Bernanke had never developed his besotted, blind man-crush on Milton Friedman which we'll all have to pay for in the coming years.

Anyway here is a question for you or anyone.

I called a central reserve currency backed by gold 'insanely stupid' while whinging about others calling people stupid.

Conceptually I see a central reserve gold backed currency as a recipe for bankruptcy (assuming you don't move to fiat.)

Now assuming say the US started with 60,000 tonnes fully backing its currency in what theoretical way could it avoid bankruptcy in the future (other than collapsing global growth.)

You can make any assumptions you like (no ladders, no reciprocal altruism, no large gold discoveries, constant increases in velocity). You can debase gold if you like, or inflate the price. Adjust interest rates. All roads lead to bankruptcy. Oh and go for capital controls, taxes on surpluses, import tariffs etc.

It just seems inherently intuitive. The Chinese have large surpluses being paid for by ticker tape, what if the dollar was backed by gold. Eventually you have to debase as you fund global liquidity which eventually leads to the loss of all your gold and bankruptcy. This can all be avoided by artificially destroying the global economy.

It virtually ruined the UK economy and did a pretty good job on the US. Just need a theoretical answer.

No, I don't agree

A return to gold standards would be hugely damaging in many ways. Gold is an arbitrary way to enforce fiscal disciplines and would have a huge drag on global growth as well as distributing rights to global growth in a random way - the extent to which it's immediately good or bad for individual debtor nations like Greece, France, Germany, USA would depend on how existing debts and gold holdings are treated - jack up the price of gold to $ 100,000 per oz and they can easily repay all their debts and start from scratch. China would, assuming that US clears its debts in a responsible way. end up presumably with an increased gold holding. Going forwards assuming that South Africa and China remain the largest gold producers they would hold the lion's share of responsibility for controlling the flow of gold and for the destiny of the global economy. Your fears about economic sovereignty would be very real.

However under such a scenario currency can't exceed gold reserves, hence sovereign bankruptcies become impossible - although the risk is that the depressionary forces of maintaining the discipline force countries to abandon adherence again in the future and that leads us into 1930s style sovereign debt and default issues. Adherence to the standard builds up such huge depression forces that when these are unleashed.

It would suit the debtor nations with huge gold holdings to inflate away the debt through a huge currency devaluation and a return to gold at higher prices but what about debtor nations without gold holdings? The UK would not be able to participate in this system and would join marginalized countries like Iceland and Ireland excluded from this new global economy - they'd have to be bailed out by the beneficiaries.

Most of Asia would be set back many years because of low gold holdings and seeing the value of their FIAT reserves depreciated. The adjustments involved would cause a new set of global imbalances that would dwarf the current problems. The global economy would eventually recover but probably not in any recognisable form. This would be an even bigger shock to the system than Bretton Woods and it may take something like another world war to cause its introduction.

Gold-backed currencies are an accident of history. I do not believe that they make sense today. Individual interpretations of fiscal policy have arguably been even worse. Rules-based experiments like the Euro appear to be failing in very short order because countries twist and then break the rules. In 2010 it ought not to be impossible to devise a global system based on money supply in relation to something less random (asset and GDP ratios) enforceable globally but there is no mechanism for doing so. Many of the problems that we see now are the outcome of countries pursuing national self-interest in a system that has no effective co-ordinated global regulation. Global problems are the symptom, national self-interest is the disease. Gold at least applied limits to this but I believe that the costs of re-introducing gold in 2010 would be too high to be acceptable to many countries. Who knows, maybe an attempt to force the issue could be an underlying cause of WW III ?

Yes, a gold standard would slow economic growth down but it must be slowed down. That is the whole problem, that is why we have booms and busts. Debt is not magic, it only defers payments on economic activity that already happens. For example, if you build 20 years worth of houses in ten years, what are you going to do the following ten years ? You can't build houses.The only way it was possible for you to build 20 years worth of houses in ten years is because, through debt, the settlement on those houses was deferred by ten years.

When you add up the booms and the busts, it still comes out equal, the only difference is that there is huge imbalances, huge volatility and lots of pain when your money supply out paces your population growth by a large margin. The last 10 years in the US is a perfect example. They have moved backwards, the DOW at 10,000 in 2009 with the dollar at 74 is not the same as the DOW at 10,000 in 1999 with the dollar at 120. There is less jobs in the US now then there was 10 years ago.

Edited March 20, 2010 by sokal

[Gambles]

Gotcha just where I wantcha.

UK maxed out paying off debts to the finance industry.

http://www.telegraph.co.uk/finance/persona...-they-earn.html

More than 5m adults spend more than they earn, according to a survey.

A further 13m just break even at the end of every month while 26m have less than £100 left in their bank account after paying all their bills, research from uSwitch.com, the price comparison service, found.

If you can believe the figures, there is hardly a single adult in the UK managing to save more than 5,000 Baht/month. My local noodle soup stands do far better than that.

And the government reckons they can tax 'em even more?

But I do not understand why they are moaning about the price of fuel

Predictions that the price of petrol is about to reach a record high of £1.20 a litre

That is only about 1.6 times what the Thais are paying....................................................... and the average wage in Thailand is far far below the average wage in the UK.

Surely some economic imbalance is evident here?

Not for long!

But if a noodle soup stand saves more than the average Brit, whos richer?

A countdown conundrum.

LOL !!!

[Gambles]

Nobody is suggesting anything of the sort. Having central banks back a certain amount of their reserves with gold is not a loonie idea. It is what they have always done.

So obviously you need a certain amount of reserves to provide liquidity in a panic - say 3 months imports. Now if you have excess reserves like Thailand doesnt it really make sense to use excess reserves to build up commodity holdings, invest abroad, do something inherently more productive than sitting on USTs.

Thailand has say US$70bn of 'excess' reserves. I simply dont believe acquiring ever increasing amounts of US$ or other currencies is the best use of them. Is there any theoretical work on this?

In Thailand or generally? It's actually a really interesting topic. In China they have teams of central bank economist really focused on best use of reserves in real time. BoT have a much smaller economic unit looking into the same issue - but much less actively than China. Having met some of the people from BoT I was extremely impressed by their ability and knowledge - top people - although the science of using reserves in Thailand is at a very early stage and currency management appears to be the main focus.

We're putting together a research piece on this but that's several months away. I also know an affiliated research house that's also doing some very interesting work in a related field of central bank policy that should be ready before ours.

[Gambles]

What do you think the Chairman of Morgan Stanley Asia does for a job. He and his firm handle "managed portfolios" on behalf of persons for whom you should 'feel sorry'.

Whether you print it, digitize it, borrow it. The result is the same. Governments or citizens living beyond their means. We see the result. ALSO... Being a contractor one thing I have seen a lot of ... That's great coming from a contractor... buildings or houses, I presume, not violins.

TV Buzzword Generator: useless Keynesian fiat dollars from an insane digital printing press

Calling fiat keynesian is an insult to fiat. If fiat was managed strictly by Austrian economists then it would have a chance, that is the way the Federal reserve was originally set up. It was supposed to be independent so that the politicians could not go Mugabe on the currency. Keynesianism is the politicians way around the independence of the Federal reserve.

see my comments ref the Euro - rules based systems have always been broekn by human interventions. In the world we live in they will continue to be. National self-interest is still winning out every time.

[Gambles]

No, I don't agree

A return to gold standards would be hugely damaging in many ways. Gold is an arbitrary way to enforce fiscal disciplines and would have a huge drag on global growth as well as distributing rights to global growth in a random way - the extent to which it's immediately good or bad for individual debtor nations like Greece, France, Germany, USA would depend on how existing debts and gold holdings are treated - jack up the price of gold to $ 100,000 per oz and they can easily repay all their debts and start from scratch. China would, assuming that US clears its debts in a responsible way. end up presumably with an increased gold holding. Going forwards assuming that South Africa and China remain the largest gold producers they would hold the lion's share of responsibility for controlling the flow of gold and for the destiny of the global economy. Your fears about economic sovereignty would be very real.

However under such a scenario currency can't exceed gold reserves, hence sovereign bankruptcies become impossible - although the risk is that the depressionary forces of maintaining the discipline force countries to abandon adherence again in the future and that leads us into 1930s style sovereign debt and default issues. Adherence to the standard builds up such huge depression forces that when these are unleashed.

It would suit the debtor nations with huge gold holdings to inflate away the debt through a huge currency devaluation and a return to gold at higher prices but what about debtor nations without gold holdings? The UK would not be able to participate in this system and would join marginalized countries like Iceland and Ireland excluded from this new global economy - they'd have to be bailed out by the beneficiaries.

Most of Asia would be set back many years because of low gold holdings and seeing the value of their FIAT reserves depreciated. The adjustments involved would cause a new set of global imbalances that would dwarf the current problems. The global economy would eventually recover but probably not in any recognisable form. This would be an even bigger shock to the system than Bretton Woods and it may take something like another world war to cause its introduction.

Gold-backed currencies are an accident of history. I do not believe that they make sense today. Individual interpretations of fiscal policy have arguably been even worse. Rules-based experiments like the Euro appear to be failing in very short order because countries twist and then break the rules. In 2010 it ought not to be impossible to devise a global system based on money supply in relation to something less random (asset and GDP ratios) enforceable globally but there is no mechanism for doing so. Many of the problems that we see now are the outcome of countries pursuing national self-interest in a system that has no effective co-ordinated global regulation. Global problems are the symptom, national self-interest is the disease. Gold at least applied limits to this but I believe that the costs of re-introducing gold in 2010 would be too high to be acceptable to many countries. Who knows, maybe an attempt to force the issue could be an underlying cause of WW III ?[/size][/font]

Ok, but go back and start again.

You cant make illogical assumptions. If you have a gold backed paper currency you cannot claim that huge reserves of gold allow you to revalue it because me (being say China) has already swapped my paper for your gold. If you are a huge debtor nation with a pile of gold and outstanding debts in paper gold backed by gold you cannot assume I am too stupid to recognize that you are going to debase the paper. That is why you are going bust. I take your gold rather your paper.

If you think about it huge debtor nations with large gold holdings supporting their paper is an oxymoron.

Very simply a gold backed central reserve currency would attract large annual acquisitions of its currency by other countries, the resulting current account deficit would cause ever increasing amount of debt for the Central Reserve Country. Obviously at some point this would result in a crisis of confidence over your ability to keep it gold backed, so paper is exchanged for gold, until you lose all your gold holdings.

But you have to have some starting point. It can't be ~$1100 per oz because

1) no way that the debtor countries could cancel that much currency in any reasonable timescale

2) $ 1100 is a price that doesn't assume a gold standard priced in there

And that's why a gold standard is unlikley except as part of a militarily imposed solution (like Bretton Woods) - the higher the price the better it suits the gold owning/producing debtor nations nations, the lower the price the better it suits creditor non-gold nations

national interest makes a starting point impossible to my mind because of what it implies for monetary polcy - having gotten so far in debt, this needs to be inflated away or somehow written off. Any gold soluation today would have to recognise this and I just can't see that.

Rum rampant inflation for a few years and maybe this opens the door slightly more.....a gold standard per se can't re-write the fiscal irresponsibility of the last few years

[Gambles]

Yes, a gold standard would slow economic growth down but it must be slowed down. That is the whole problem, that is why we have booms and busts. Debt is not magic, it only defers payments on economic activity that already happens. For example, if you build 20 years worth of houses in ten years, what are you going to do the following ten years ? You can't build houses.The only way it was possible for you to build 20 years worth of houses in ten years is because, through debt, the settlement on those houses was deferred by ten years.

When you add up the booms and the busts, it still comes out equal, the only difference is that there is huge imbalances, huge volatility and lots of pain when your money supply out paces your population growth by a large margin. The last 10 years in the US is a perfect example. They have moved backwards, the DOW at 10,000 in 2009 with the dollar at 74 is not the same as the DOW at 10,000 in 1999 with the dollar at 120. There is less jobs in the US now then there was 10 years ago.

see my latest post. Yes I totally agree that we have had too much growth and too much debt. However I don't agree that this means that the gold standard is the only or best solution. It's a totally artifical constraint in that gold has no causal relationship to the sustainable growth potential of the 21st century economy

We can either adjust the bubbles through an extremely sharp deleveraging (what I believe is the right action) which most major participants are not prepared to contemplate, a protracted Japanese deflation because we live in denial and won't face reality (where we are now) or rampant inflation to remove the debt (where we think The Fed are trying to get to but we doubt their ability to succeed).

Involving gold in this process would be a way of making the corrective action so much shorter and so much sharper that it's virtually impossible to contemplate in the real world and possibly self-defeating at this stage. What kind of a tipping-point would be say 50%+ unemployment be? The human cost is incalcuable and the social and geo-political unrest would be mind-boggling. In that scenario the more realistic situation would be to deleverage now and take that pain and then to introduce a gold standard BUT doing so at that time would be a restriction/drag on growth - yes it could prevent excesses for a while and that would be a good thing in many ways but history shows that it only works for a while because of human greed and in the end man breaks the gold standard and then the 1920s and 1930s happen all over again. The gold standard was a good thing for a particular era but turned out to be too fragile in the hands of governments using sledgehammers as policy instruments.

Saying that man 'should' always respect the standard is futile unless you have the means of ensuring this - you could maybe do that in China perhaps but command economies are maybe the places you least need/stand the last chance of getting gold standards?? then again they're at the whim of the 'commanders'......

It's an interesting debate - I'm surprised that there isn't more talk right now about sovereign securities such as the renten mark experiment; something like that might be a better 21st century version of the gold standard in an economy where other assets have assumed far greater economic real importance than gold. Seems more logical to little old me but never really seen much written or said about it....